A mining project involves production from a The time zero mineral rights acquisition cost of $2.000.000 is the 5,000.000 ton reserve. basis for cost depletion. Development expenses of $3.500.000 will be incurred at time zero. Producing equipment costing $3,000.000 at time zero, will go into service in year one and be depreciated using the 7-year life MACRS depreciation with the half-year convention (the half-year convention is included in Table 7-3 rates). Production is estimated to be 350.000 tons per year, starting in year one. Product selling price is estimated to be $8bEper ton in year one. $82 in year two, and $84 in year three. Royalties are 12 5 of gross revenues in each year. Operating costs are expected to be $30 per ton of prodec tion in year one, $32 in year two, and S34 in year three e alowable percentage depletion rate is 15.0% The effective federal and state income tax rate is 40.0%. No other income exists against which to use deductions so all negative taxable income will be carried forward until used against project income (stand alone analysis). Determine the cash flows for years 0, 1. 2 and 3 without taking writeoffs on remain- ing tax book values at year 3. assuming: A) The investor is a corporation. Expense 70% of mineral develop- ment in time zero. Capitalize the other 30% and deduct by anorti- zation over 60 months assuming a six month deduction (6/60) in time zero. B) The investor is an individual. Expense 100% of mineral develop- ment cost in time zero